Overseas remittances to Vietnam reached a record high of more than US$8 billion last year, an unexpected increase of 25.6 percent over 2009.

In December alone, the inflow was $770 million, according to the central bank's foreign currency management department.

The funds, a major source of foreign currency in Vietnam, come from overseas Vietnamese who want to support their families or those looking to invest in their homeland.

The bulk of remittances flowed into Ho Chi Minh City, which received $3.8 million last year, up 20 percent from the previous year.

Analysts said the record high amount of money sent to Vietnam, equal to 7.6 percent of the nation's gross domestic product, was a surprise as the forecast was around $6 billion.

Remittances to Vietnam more than tripled from 2001 to 2008, when it reached $7.2 billion. But due to the global economic crisis, the flows fell 13 percent in 2009 to $6.3 billion.

Tran Van Trung, director of the Dong A Money Transfer Company, said overseas remittances grew last year because the economy started recovering, allowing many people, especially those in the US, to send money home. Besides, the increasing quality of money transfer services, a wider range of products and favorable polices have also contributed to the strong flow, he said.

Trung said recipients are not required to pay income taxes and they can choose to receive the money in either local currency or the US dollar.

According to a World Bank report in November, Vietnam ranked third among the top 10 remittance recipients in East Asia and Pacific, after China and the Philippines. Worldwide, the top recipient countries in 2010 were India, China, Mexico, the Philippines, and France.

Cao Sy Kiem, a member of the National Monetary and Financial Policy Advisory Council, said 2010 was a successful year for Vietnam in receiving remittances, but the problem was how to make the funds more valuable to the economy.

"The remittance flows are strong but we haven't put them to effective use," he said. "Remittances are transferred via banks, but they are not sold to or deposited into banks for later use by the economy."

"Overseas remittances are mostly retained by the public," Kiem said, citing a lack of confidence in the banking system and the local currency as a reason.

Economist Dinh The Hien said the gap between black market and official rates for the dollar is still too large to draw dollar remittances into banks.

"To solve the problem, this gap must be narrowed," he said.

Kiem said that with economic prospects getting brighter this year, the country can expect even more remittance inflows.

It's necessary to create the right monetary policies and convince people to deposit money in banks rather than keeping it at home, he said.